Huntington National Bank 2010 Annual Report Download - page 107

Business segment results are determined based upon our management reporting system, which assigns
balance sheet and income statement items to each of the business segments. The process is designed around
our organizational and management structure and, accordingly, the results derived are not necessarily
comparable with similar information published by other financial institutions.
Funds Transfer Pricing
We use an active and centralized FTP methodology to attribute appropriate net interest income to the
business segments. The intent of the FTP methodology is to eliminate all interest rate risk from the business
segments by providing matched duration funding of assets and liabilities. The result is to centralize the
financial impact, management, and reporting of interest rate and liquidity risk in the Treasury / Other function
where it can be centrally monitored and managed. The Treasury / Other function charges (credits) an internal
cost of funds for assets held in (or pays for funding provided by) each business segment. The FTP rate is
based on prevailing market interest rates for comparable duration assets (or liabilities), and includes an
estimate for the cost of liquidity (liquidity premium). Deposits of an indeterminate maturity receive an FTP
credit based on a combination of vintage-based average lives and replicating portfolio pool rates. Other assets,
liabilities, and capital are charged (credited) with a four-year moving average FTP rate. The denominator in
the net interest margin calculation has been modified to add the amount of net funds provided by each
business segment for all periods presented.
Revenue Sharing
Revenue is recorded in the business segment responsible for the related product or service. Fee sharing is
recorded to allocate portions of such revenue to other business segments involved in selling to, or providing
service to, customers. The most significant revenues for which fee sharing is allocated relate to customer
derivatives and brokerage services, which are recorded by WGH and shared primarily with Retail and Business
Banking and Commercial Banking. Results of operations for the business segments reflect these fee sharing
allocations.
Expense Allocation
The management accounting process that develops the business segment reporting utilizes various
estimates and allocation methodologies to measure the performance of the business segments. Expenses are
allocated to business segments using a two-phase approach. The first phase consists of measuring and
assigning unit costs (activity-based costs) to activities related to product origination and servicing. These
activity-based costs are then extended, based on volumes, with the resulting amount allocated to business
segments that own the related products. The second phase consists of the allocation of overhead costs to all
four business segments from Treasury / Other. We utilize a full-allocation methodology, where all Trea-
sury / Other expenses, except those related to our insurance business, servicing Franklin-related assets,
reported Significant Items (except for the goodwill impairment), and a small amount of other residual
unallocated expenses, are allocated to the four business segments.
Treasury / Other
The Treasury / Other function includes revenue and expense related to our insurance business, and assets,
liabilities, and equity not directly assigned or allocated to one of the four business segments. Assets include
investment securities, bank owned life insurance, and the loans and OREO properties acquired through the
2009 first quarter Franklin restructuring. The financial impact associated with our FTP methodology, as
described above, is also included.
Net interest income includes the impact of administering our investment securities portfolios and the net
impact of derivatives used to hedge interest rate sensitivity. Noninterest income includes insurance income,
miscellaneous fee income not allocated to other business segments, such as bank owned life insurance income
and any investment security and trading asset gains or losses. Noninterest expense includes any insurance-
related expenses, as well as certain corporate administrative, merger, and other miscellaneous expenses not
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